GM Expects to Take Charge
Of Up to $3 Billion Next Year

DETROIT --
General Motors Corp.
disclosed that it expects to take a charge of $2 billion to $3 billion against net income this quarter or early in 1998.

The charge, which would rank in the same league as the company's record $2.8 billion charge that the No. 1 auto maker took in 1991, would be related to plant closings and "asset impairments," GM said in a filing with the Securities and Exchange Commission. It would reduce quarterly net income $2.85 to $4.27 a common share, GM said.

Taking Big Hits

The $2 billion to $3 billion charge against earnings that General Motors expects to take as early as this quarter ranks with the biggest hits GM has taken in the past 11 years. Here is a look at some other restructuring charges at the No. 1 auto maker:

Year

Amount (billions)

Reason

1986

&nbsp;&nbsp;$1.22

Charge for closing of nine factories and parts of two others, eliminating 30,000 jobs.

1990

&nbsp;&nbsp;$2.10

Charge for closing of seven assembly plants and a handful of parts factories, affecting 20,000 workers.

1991

&nbsp;&nbsp;$2.80

Charge for restructuring and closing of 21 factories over three and a half years, eliminating 74,000 jobs.

Unlike some of the huge charges that GM took in the 1980s and early 1990s, however, this one wasn't linked to a specific number of factory closings or layoffs. Company representatives were vague about any new plant closings and indicated that much of the charge could be related to the revaluation of nonperforming assets.

In addition, individuals close to the situation said that GM could use the charge to offset part of the $4 billion gain that GM is likely to book on the sale of its Hughes defense assets to
Raytheon Co.
GM's unionized work force, these individuals say, has been sending strong signals that they expect a big profit-sharing distribution as a result of that sale.

In New York Stock Exchange composite trading, GM shares closed down $1.8125 to $63.625 on heavy volume. Some Wall Street analysts said they were disappointed that GM doesn't appear to be planning to substantially cut its North American vehicle-making capacity.

"It's still unclear whether this is an act of bookkeeping or whether there will be a new push for capacity reduction," said J.P. Morgan analyst David Bradley.

Growth Slows in Brazil

In addition to the SEC filing, the market was reacting to disclosures that GM's growth is slowing in Brazil, one of its most profitable markets, because of economic uncertainty there. There also has been word lately of increased marketing costs in the U.S. The GM filing was related to moves to obtain shareholder approval of the proposed $9.5 billion sale of the Hughes defense unit to Raytheon.

GM said the expected charge is related to a global capacity and competitiveness review that was disclosed in September. So far, the only specific steps GM has announced as growing out of the study have been the proposed sale of some of its Delphi Automotive Systems unit's parts plants and a work-force reduction in Belgium. In fact, the company's top executives have said recently that they are comfortable with their present capacity, at least in North America.

A GM spokeswoman acknowledged that any gain from the Hughes deal would increase the profit-sharing payment, and any charge from the capacity review would reduce such a payment for GM's hourly work force. "There is a lot of input into the profit-sharing formula, and both of these would be inputs," Toni Simonetti, the GM spokeswoman, said.

Underperforming Delphi Operations

The likely charge seems aimed at lowering the book value of some of the company's nonperforming assets to so-called fair-market value. GM referred to such a process in its filing as "asset impairments," and officials said that the company's productivity levels could be improved by going through and writing down a number of assets. It appears that much of this has been sparked by GM's recent move to break apart the financial results of its North American automotive and Delphi parts units. This has exposed many parts of Delphi as underperforming.

In North America, industry experts and analysts said there could well be additional plant closings or sales announced by Delphi as it begins to merge its operations with those of the Delco Electronics unit of Hughes. As part of the Hughes defense sale, GM is merging Delco with Delphi. Top GM officials have signaled there may be billions of dollars of restructurings stemming from the deal. Lehman Brothers analyst Joe Phillippi said he expected more plant sales as a result of the capacity review, but not necessarily outright closings.

The fate of one GM assembly plant in North America, Buick City in Flint, Mich., appears cloudy. No new product has been identified for the plant past 1999. And despite some recent talk about alternative plans for the factory, one person close to the situation said Tuesday the prospects for its future didn't look good.